Wells Fargo CEO: Get gov’t out of “the home loan business”
posted at 2:41 pm on January 7, 2013 by Ed Morrissey
Policy-wise, this is an oldie but a goodie, I guess, even though we’re still spending tons of money on Freddie Mac and Fannie Mae more than four years after the crash. Wells Fargo CEO Robert Kovacevich can’t believe that we haven’t learned the lesson from 2008 and gotten the government out of the home mortgage industry, and tells CNBC’s Squawk Box that the two organizations made that crash exponentially worse than it needed to be:
Fannie Mae and Freddie Mac exacerbated the 2008 mortgage crisis, and that’s why the U.S. government should get out of the home loan business, former Wells Fargo CEO Richard Kovacevich told CNBC on Monday.
“If it wasn’t for Fannie and Freddie, [the mortgage crisis] would have been a small problem. Fannie and Freddie and other government agencies guaranteed 70 percent of those [bad] mortgages,” Kovacevich said in a “Squawk Box” interview. He argued that without government-sponsored guarantees, there would not have been any private money willing to buy the toxic loans that have been blamed for the crisis.
“There needs to be a decision that the government will not be in the mortgage business in the sense of a hybrid [like Fannie and Freddie],” Kovacevich said. He did say that if the government wants to be in the home loan business, it should do so through the Federal Housing Administration, which has worked well for a long time.
I’m not sure that’s any better, since the Obama administration uses FHA the same way Congress used Fannie and Freddie. Erika wrote nearly two months ago that FHA might need a bailout itself, thanks to their adoption of the Fannie/Freddie model in order to push lending to riskier recipients. I’ve been writing about that since 2009, and even if the bailout would cost significantly less, it’s yet another example of how government distortion in lending and securities markets are nothing but a set-up for disaster — a lesson we shouldn’t have to relearn after 2008.
Speaking of which, remember when the Obama administration and Democrats said that they couldn’t take up Fannie/Freddie divestment in Dodd-Frank because of the complexity involved, and said that taxpayer protection from these sinkholes would be tackled separately? Whatever happened to that effort?